SLVWD Board Meeting Summary
June 6, 2024
Mark Dolson
Highlights:
Valley Gardens Development Will-Serve Letter
Valley Gardens Off-Site Sandhills Mitigation
New Debt Financing
Committee Appointments
A. Notice of Election
B. Lyon and Big Steel Change Orders
E. Susan Robinson Grant Contract Amended
F. Award of Design for DWR Tanks Replacement
G. Award for Pipeline Relocation for Caltrans Gabion Wall
I. Board Meeting Minutes 5.2.24 and 5.21.24
Next Board meeting is at 6:30 PM on June 13, 2024
Preliminaries
All five Directors were present, with Director Smolley participating remotely.
President Hill had one item to report from the just-concluded Closed Session. He said the Board decided to forward a draft General Manager’s contract to Legal Counsel for review and presentation at the August 1st Board meeting.
There were three public comments on non-agendized items: Nicole Launder Berridge of Bracken Brae urged the Board to follow through ASAP on its commitment to hold a special meeting for a working session with Bracken Brae and Forest Springs. Time is running short for Bracken Brae to make use of its FEMA funds, and it is important for all parties to work together on a common understanding of the signed Letter of Intent.
Interim General Manager Brian Frus said an item would be placed on an upcoming agenda. Director Fultz (who has been pushing for a working meeting for many weeks) pressed Brian for additional clarification. Brian said Staff was working to advance this but could not comment further publicly at this time. Director Hill formally requested an upcoming agendized item that will allow for discussion of whatever can be publicly shared.
Tricia Weber, the Santa Cruz County Clerk, advised the Board that an initiative for a “Fixed Charge Limitation Ordinance” was turned into her office and had been forwarded to the District for discussion. The petition met the signature threshold, so the initiative will be on the November ballot. However, the proponents can still withdraw it by August 9th.
Director Hill requested that this be agendized for the next Board meeting, and there was some ensuing discussion to determine how soon the Board should consider this. Legal Counsel Barbara Brenner said she had only just received this document and hadn’t yet had a chance to review it. Brian said Staff would inform the Board as soon as it had more information.
Eric Martin of Boulder Creek asked about the planned location of a new pump station in Boulder Creek. District Engineer Garrett Roffe advised that it would be at the corner of Highway 236 and Ridge Drive.
Unfinished Business
None.
New Business
Valley Gardens Development Will-Serve Letter
This agenda item was introduced by Mark Robson of Robson Homes, the developer for the proposed Valley Gardens project in Scotts Valley on the site of the former 9-hole golf course. Robson Homes has been in business for the past 35 years. The current site plan includes a retail center, open space, 142 single-family homes, and 52 apartments. Most of the property is within District’s established sphere of influence, so SLVWD is legally obligated to provide water to these new connections. However, Robson Homes needs an official letter confirming that SLVWD will comply. Mark described benefits to the District which were subsequently reiterated by Brian (see below). Mark said the golf course used 70 acre-feet per year of well water which then simply evaporated. In contrast, the new development will use 42 acre-feet of SLVWD-supplied water per year, most of which will end up being recycled.
Garrett and Brian listed numerous benefits to the aquifer and to SLVWD: the District has sufficient water available (and there will be less burden on the aquifer than there was with the golf course); the District will receive $3 million in new connection fees; the District will receive an additional $1 million from the developer for pipeline upgrades that are already mandated in the District’s latest Master Plan; the District will receive about $350,000 annually in usage charges; there will inevitably be increased operating economies of scale. Barbara reminded the Board that the District is obligated to serve customers within its service area. Brian added that Staff had carefully reviewed this to make sure that everything was covered. Connection fees cover the amortized cost of buying into SLVWD’s system. Other charges are what are allowed as fair and reasonable.
Director Ackemann noted that the District lost around 200 homes in the CZU Fire, and very few of these have been rebuilt.
Director Fultz had a number of detailed questions. He asked if Scotts Valley had approved the project, and Mark said the Will-Serve letter was a requirement for this. In response to a follow-up question, he said 29 of the 196 full units (homes and apartments) are classified as “affordable.” In response to a further question, he said all of the units would have sprinklers. Director Fultz asked what would happen if the connection fee changed prior to project approval; Brian said the District would use current rates at that time. Director Fultz wanted to know the lengths of the two pipelines to be upgraded and who would perform the work on these. Garrett gave the lengths as 400 and 800 feet, and Brian said Robson would perform the work to the District’s standards. In response to a follow-up question, he said Robson would also reimburse the District for its review of this work. Lastly, Director Fultz asked about the size of the pipeline from the Probation Tank (which will serve the development) and whether this size was sufficient. Brian said the 8” size was dictated by fire laws. In closing, Director Fultz observed that the additional demand on the SLVWD system would be in the range of 2-3%.
Director Smolley had some similarly detailed questions and was satisfied with the responses. He asked to see the engineering review from Akel in writing, and Garrett said he would provide this.
There were five public comments: Rick Moran said he hoped the new residents would be more attentive to water conservation than the golf course apparently was.
Debra Loewen of Lompico said her first question had been addressed by Director Smolley. Her second question was whether increased demands on Staff had been accounted for. Her third comment was a criticism of General Manager Frus for what she perceived as disrespectful treatment of Director Fultz.
Eric Martin of Boulder Creek said he found it offensive for the District to be selling this local resource to essentially another city.
Bruce Holloway of Boulder Creek said he was mindful of the District’s obligation to serve customers within its boundaries.
Nicole Launder Berridge of Bracken Brae said she wanted to remind everyone that Bracken Brae was within the District’s sphere of influence and paid property taxes and was not receiving appropriate attention from SLVWD.
President Hill and Director Ackemann reiterated that the Valley Gardens development is within the District’s established service area. Purely as a hypothetical, Director Ackemann asked what would happen if the District refused to comply with the legal requirement that it serve these customers. Barbara said it would get messy: there could be political pressure, and the matter would ultimately go to the court system.
Chris (attending online) was allowed to speak, and she complained about the County’s treatment of fire victims.
Director Fultz agreed that the District could only refuse to serve Valley Gardens if it could demonstrate some critical shortage of water. He said SLVWD actually sells about 30% less water than it did a decade ago, which is a testament to local conservation efforts. However, he said three of the District’s four surface water intakes were currently offline, that the emergency authorization to redistribute Fall Creek water could end, and that this could significantly impact the South System in a drier year. He argued that this reinforced the need for SLVWD to secure the water rights it has been pursuing for some time now. He asked if Staff has had any conversations about trying to use this new development to partially pay for restoration of the District’s water sources.
Brian, Barbara, and Director Ackemann all agreed that there was no way to hold the developer liable for unrelated existing damage to the District’s infrastructure. President Hill also confirmed that the District’s current well capacity was sufficient.
Director Fultz then offered a new argument. He asserted that this was a really big decision for the SLV community and said he wanted to delay a decision so as to give the community a little more time to absorb this. He suggested that the District should engage with local media to give everyone increased opportunity to comment.
Director Hill moved to delay a decision until the July 18th special meeting, and Director Fultz seconded. The motion passed 3-1 with Director Ackemann voting against it.
Valley Gardens Off-Site Sandhills Mitigation
Environmental Programs Manager Carly Blanchard introduced this agenda item. Her memo in the Board packet explained that Robson Homes is in the process of completing a Habitat Conservation Plan (HCP) and an Environmental Impact Report (EIR) for the Valley Gardens project. As part of the HCP, the Federal Fish and Wildlife Service (USFWS) has required that Robson Homes mitigate their project impacts on the Mount Hermon June beetle.
Entities working in the Sandhills habitat typically purchase mitigation credits through the Zayante Conservation Bank. However, the Conservation Bank currently has too few credits available. Consequently, Robson Homes contacted the District to inquire about conducting off-site mitigation within District lands.
The District owns the 180-acre Olympia Watershed Property, of which approximately 95 acres feature Sandhills habitat. In 2017, the District established a 6.3-acre conservation area that supports endangered species and sensitive habitats found in the Santa Cruz Sandhills. This Olympia Conservation Area was set aside by the District to mitigate the impacts of its capital improvement (CIP) and operations and maintenance (O&M) projects on rare species and sensitive habitats in the Sandhills.
The District is also in the process of developing an HCP for its Sandhills habitat, providing mitigation on a larger scale as required by the Endangered Species Act. The HCP’s Conservation Strategy has determined that the District will need to protect and restore 40 acres of habitat to mitigate the impacts of the District's CIP and O&M projects on sandhills species, based on a 3:1 ratio for permanent impacts and a 1:1 ratio for temporary impacts, as typically required by the USFWS for sandhills species mitigation. The estimated cost to manage and monitor this increased conservation area easement is $80,000 annually.
The Valley Gardens Project will require 10 acres of Sandhills habitat to meet its mitigation requirements. Hence, the District could expand the conservation area associated with its HCP from 40 to 50 acres, to help Robson Homes meet their mitigation requirements. This scenario, would not only broaden and benefit restoration of the District’s mitigation site but would also reduce the cost of implementing the HCP.
Staff evaluated alternative scenarios and costs for Robson Homes to acquire their mitigation needs through other sources. After reviewing these options, Staff recommended using the pricing set by the Zayante Conservation Bank ($4.37 a square foot), resulting in a $1.9 million payment to the District for 10 acres of mitigation at the Olympia Watershed property. The payment would cover the cost associated with the additional 10 acres and long-term maintenance, estimated at $700,000 for 30-plus years of Management and Monitoring of the Endowment (with an assumed 3.5% net capitalization rate).
However, Carly began her live presentation by announcing that the very latest pricing from the Zayante Conservation Bank showed an increase from $4.37 per square foot to $6 per square foot. Staff therefore had updated the price tag for Robson Homes from $1.9 million to $2.6 million. Brian summarized the situation by saying Robson could, in principle, shop on their own for 10 acres, but the District’s updated offer was still based on the most recent and relevant comparison available. He said the District could comfortably steward 50 acres in perpetuity with the resulting endowment fund. He described this as a good deal for the District. Barbara added that a federal agency was encouraging the District to do this, and she agreed that it was a good opportunity for the District.
Director Smolley sought more detailed cost figures and comparisons. Carly said this partly depended on pending negotiations with Fish and Wildlife (which will occur after the agreement is finalized). Brian said it was very likely that the District would come out ahead.
Director Fultz had two concerns. First, he asked if there was some way the District could guarantee that Robson would pay the District for whatever the 10 acres ends up costing it. Carly said this couldn’t happen until the project is approved. Second, Director Fultz said he thought the SLV community definitely needed to weigh on this because: (a) the District wasn’t being required to do it, and (b) there is a lot of anti-growth sentiment in the valley. Director Ackemann said she didn’t understand this argument. The District would just be conserving land that will need to be conserved in any event, and the developer would simply be paying the District instead of someone else. The District would not be funding growth, and she saw no need to delay a decision.
There were two public comments. Rick Moran of Ben Lomond said he was glad Staff had heeded his April public input and revalued the land. He saw this as a good overall thing to do.
Mark Robson said $6 was above market value. He said $4.33 is the price that was verbally agreed to, and this is still a good deal for the District. He said the Zayante Bank wanted to sell him more land, but he told them he was sticking to his deal with the District (at $4.33).
Director Fultz said there was no current agreement and hence nothing to vote on. Director Hill moved that this item be returned to Staff, and Director Ackemann seconded. Director Fultz recommended removing specific references to Jody McGraw in the proposed agreement, and Barbara said she would do this.
There was one further public comment: Nicole Launder Berridge from Bracken Brae said she was concerned that the Board’s agenda was getting really full, and that the Bracken Brae and Forest Springs consolidation has been paralyzed for the past six months. She said she would like a Board meeting in July so Bracken Brae doesn’t lose its FEMA money.
The motion passed 4-0.
New Debt Financing
Finance Consultant Heath Ippoliti introduced this agenda item. Her memo in the Board packet explained that the financial plan model used to develop the updated rates included a five-year cash flow projection through June 30, 2028. It assumed the District would issue $19 million in debt financing in FY 2024 to fund capital projects.
The 2023-25 biennial budget assumed receipt of just over $16.3 million in FEMA reimbursements. The consultant assisting the District with FEMA claim filing, estimates the District will receive $6.9 million in the next 13 months, bringing the 24-month total from FEMA to $7.5 million and resulting in approximately $8.8 million in revenue shortfall over the two-year budget period.
As of April 30, 2024, there was $6.4 million in unspent debt proceeds from debt issued in 2019 and 2021. With many projects coming to completion in the next couple of months, Staff anticipates the unspent debt proceeds will be depleted by the end of July. These dollars are already programmed for other capital projects and cannot be used to help the FEMA revenue shortfall. For the FEMA-funded projects included in the 5-year CIP, the District must initially cover the costs and then seek reimbursement upon completion. However, the District's reserves are insufficient to cover these expenses.
The timing of this funding is also crucial to protecting the ability to receive other grant funds. Although the CIP includes $2.7 million in grant funds for the Bracken Brae / Forest Springs Consolidation, this amount only partially covers the project costs. As presented at the May 2nd Board meeting, an estimated $1.4 million in additional funding is needed to advance this first phase of the consolidation and fully utilize the grant. The grant funding agency has provisionally given a deadline extension to June 2025 to allow the project to progress, but meeting this deadline will require that the necessary funds to complete the project are available by the end of August or early September.
Based on the assumptions already made in the financial plan model, projected revenue shortfalls, depletion of outstanding debt proceeds, and the desire to retain grant funds, Staff is recommending the District begin the process to issue approximately $19 million in Water Revenue Certificates of Participation (“2024 Water COPs”). Since it takes about 120 days to issue and close a bond issuance and time is of the essence, it is a critical first step to engage the financing team. The timely issuance of the 2024 Water COPs will allow the District to continue funding the needed improvements to the water facilities without disruption.
Staff is recommending the selection of an experienced financing team at this time to provide the necessary guidance and expertise to move forward on the proposed financing process. Though this initial step is necessary, final Board review and approval is still required (currently projected to be on August 1st) to approve the issuance of the bonds and all the required documentation to complete the financing. Staff recommends that Oppenheimer be selected as the Underwriter, that Del Rio Advisors be selected as Municipal Advisor, and that Jones Hall be selected as both Bond Counsel and Disclosure Counsel, with fees and expenses to be contingent on the successful closing of the financing and to be paid from the proceeds thereof.
Nicki Tallman of Oppenheimer gave a brief presentation. She cited 31 years of experience, specializing in special districts (including projects with Scotts Valley Water District in 2016 and 2021, projects with Santa Cruz and San Lorenzo Valley schools, etc.). She introduced Dave Fama of Jones Hall who briefly introduced himself. Lastly, she provided a proposed timeline:
· 6/6 – Hire financing team
· 6/10 - 7/18 – Draft documents and preliminary official statement (prospectus)
· 6/12 - 7/19 – Meet with Finance Committee
· 7/24 – Agenda deadline
· 8/1 – Board meeting to approve transaction and related documents
· Week of 8/5 – Receive rating, conduct due diligence call, post prospectus
· Week of 8/12 – COP pricing
· 8/26 – Closing
Brian summarized by reiterating that time is of the essence in order to avoid cash flow problems, and that the critical first step is to engage the financing team.
Director Ackemann asked what led Staff to select Oppenheimer. Brian said the General Manager has the authority to contract with the underwriter. The other two firms were included because the three usually work as a team.
Director Fultz asked if there was any consideration of reusing the team the District used in 2019. Brian said the District’s previous Legal Counsel firm had its own Bond Counsel whereas Barbara’s firm does not. Heather recommended Oppenheimer, and they are also on the CSDA’s preferred provider list which results in preferred bond rates. Barbara added that CSDA has vetted Oppenheimer for the District and that bonds will be sold at market rates at time of issuance. Heather responded to a further question by saying there would be a standard ability to prepay.
Director Fultz then asked detailed questions about multiple projects on the list of those to be funded. Brian repeatedly responded that the choice of projects was not the current topic of discussion.
Director Smolley said all of his questions had been answered. He concurred with a previous understanding that further discussion will be need both by the Budget and Finance Committee and by the Engineering and Environmental Committee.
There were three public comments: Bruce Holloway of Boulder Creek argued that the District had taken too long to spend the money from its two most recent loans, and he recommended borrowing a smaller amount and/or seeking short-term bridge financing.
Director Fultz had called attention to the partially-grant-funded project in support of the Bracken Brae and Forest Springs consolidation, so both Karen Vitali of Forest Spring and Nicole Launder Berridge of Bracken Brae made renewed pleas for timely attention to their needs and the threat of lost funding.
Director Ackemann moved to adopt the resolution recommended by Staff, and President Hill seconded. The motion passed 4-0.
Committee Appointments
Brian asked President Hill if he wanted to fill the open Board position on the Budget and Finance Committee at this time. President Hill said he would like to, but he didn’t have a candidate. He thought he might wait until the current Board vacancy is filled. When Director Fultz argued for filling the position sooner, President Hill moved to appoint Director Fultz. He had apparently been waiting for Director Fultz to express interest whereas Director Fultz had been waiting to be asked. Director Ackemann seconded.
There was one public comment: Bruce Holloway of Boulder Creek said the agenda indicated that a new committee chair would be designated.
The Board agreed that Director Fultz will be the new Chair. The motion passed 4-0.
Consent Agenda
The Consent Agenda had nine items (which could be moved to the regular agenda upon request from a Director):
a. NOTICE OF ELECTION
b. LYON AND BIG STEEL CHANGE ORDERS
c. WATERSMART GRANT RESOLUTION
d. WATERWAYS CHANGE ORDERS
e. SUSAN ROBINSON GRANT CONTRACT AMENDED
f. AWARD OF DESIGN FOR DWR TANKS REPLACEMENT
g. AWARD FOR PIPELINE RELOCATION FOR CALTRANS GABION WALL
h. MONTHLY FINANCE REPORT
i. BOARD MEETING MINUTES 5.2.24 and 5.21.24
Director Fultz pulled items B, E, F, and G. At the request of a member of the public (Bruce Holloway), he also pulled items A and H.
President Hill moved to approve items C, D, and I on the Consent Agenda, and Director Ackemann seconded. There was no public comment. The motion passed 4-0.
A. Notice of Election
Bruce Holloway of Boulder Creek pointed out that the notice in the Board packet incorrectly referenced Gail Mahood as an incumbent. There was a brief discussion, and Director Akemann moved to have Staff make the correction and also check with the Elections Office to learn whether an Appointed Incumbent would be treated the same as an Incumbent in determining the closing date for candidates to file. The motion passed 4-0.
B. Lyon and Big Steel Change Orders
Director Fultz observed that there had been a lot of complaints on social media about Peninsula Engineering with regard to paving. He asked where and why the “additional paving” referenced in the Board packet would take place. Garrett explained that his predecessors had failed to fully understand the County paving requirements in advance and that this would not be the case in the future. Director Fultz moved to approve the motion in the Board packet, and Director Ackemann seconded. The motion passed 4-0.
E. Susan Robinson Grant Contract Amended
Director Fultz asked if the $35,000 referenced in the Board Packet was for past or future work. Carly said it was for both, as the consultant hasn’t had much time lately to work for the District. Director Fultz observed that the ROI on her work has been great. He recommended that the District take as much advantage of her as it can, even if the District ends up spending a little more. Director Fultz moved to approve the motion in the Board packet, and Director Ackemann seconded. The motion passed 4-0.
F. Award of Design for DWR Tanks Replacement
Director Fultz asked if this decision to award the contract to Mesiti Miller Engineering (MME) had gone to the Engineering Committee for review. Brian said it did not. Director Fultz asked for the amount of the competing bid from Sandis. The answer was that the Sandis bid was $220,000 lower. Director Fultz said he didn’t understand why the substantially lower bid was rejected. Garrett said MME was better qualified, but Director Fultz asked how Sandis could be qualified to perform other work for the District yet not this work. Garrett said the decision was specific to the project in question.
Director Smolley said he agreed with Director Fultz. For $220,000, he wanted to see more justification. Brian said the District has a schedule that it needs to meet. Evaluating competing consultants is not the same as evaluating competing bids. He said the District got both firms to come down in price, but it still believes they are too expensive. Unfortunately, though, the District doesn’t have sufficient Staff to handle this internally. Staff found the MME proposal to be far more thorough, and given that the design is for a $5 million project, Staff thinks MME can avoid some costly change orders that Sandis might not. Brian added that he was also disappointed to have only two consultants to choose between.
Director Ackemann said she had to respect the judgment of the two Board members on the Engineering Committee. She recommended to Brian that, in the future, if he has an urgent item and can't bring it to the committee, he should at least have a conversation with the committee chair because the Board still needs to understand his thinking.
President Hill asked if there would be a difference in the completion time between the two consultants, and Garrett said he didn’t expect one. Director Fultz reiterated his concern about the size of the cost difference, and he added a complaint about the move from two Board meetings per month to one Board meeting per month.
President Hill sent this item back to Staff.
G. Award for Pipeline Relocation for Caltrans Gabion Wall
Director Fultz objected that this project wasn’t on the CIP list and that nobody had explained where the money was coming from. Brian said this work was necessitated by Caltrans. Director Fultz said he knew the District had to do the work, but he couldn’t accept the general statement that the money was coming from reserves. Brian said this was not the issue for this agenda item.
Director Smolley moved to approve the motion recommended by Staff. Director Ackemann seconded. There was no public comment. The motion passed 3-1 with Director Fultz opposing.
I. Board Meeting Minutes 5.2.24 and 5.21.24
Bruce Holloway of Boulder Creek noted a misstatement by President Hill and the failure to report a unanimous vote. Director Fultz said the minutes should be returned to Staff. Director Ackemann said the vote should be included in the minutes, but she didn’t know what could be done to correct the misstatement.
The meeting adjourned sometime after 9:30 PM.